Key Points

The COVID-19 outbreak has blunted earning projections for travel outfit Webjet, as tourists pull back on overseas journeys and China is locked down.

“There is a high degree of traveller uncertainty,” Webjet managing director John Guscic said on Wednesday.

Webjet's John Guscic: 'Disruption will be temporary.' Chris Mollison

“But what we do know is based on historical evidence [in previous outbreaks] that the disruption will be temporary.

“Our expectation, subject to this being brought under control in the latter part of the financial year, would dictate a strong rebound into [fiscal year] 21 and won’t change the earnings trajectory of the business.”

He was speaking as Melbourne-based Webjet unveiled half-year results, showing a 16 per cent fall in bottom-line profits to $9 million. But on its preferred measure of underlying earnings before interest, tax and depreciation, business had improved 43 per cent to $86.3 million.

Webjet declared an interim dividend of 9¢, to be paid on April 16, up from the previous corresponding period’s 8.5¢ payout.

Bedbank arm

The company runs businesses including online sales direct to customers via its webjet.com.au website, which charges commissions. It also has a “bedbank” arm, which has divided the investment market and which acts as an intermediary between accommodation suppliers such as hotel chains and booking outfits such as travel agents.

The value of transactions flowing through Webjet lifted 25 per cent to a record $2.3 billion. Its own share of revenues from that flow was up 24 per cent to $217.8 million.

EBITDA was up highest in the bedbanks division, rising 81 per cent to $57.3 million, which the company partly attributed to its taking market share across all regions and cost management.

But the online Webjet division was flat at $28.8 million, which was partly blamed on weaker consumer sentiment and the summer's bushfire crisis. Meanwhile, its Online Republic division, specialising in cruise, car rental and motorhome bookings, was down 9 per cent to $6.6 million.

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A key hit to the bottom line was Webjet's writing off $44 million owed after a large customer, the travel group Thomas Cook, collapsed.

Mr Guscic said Webjet had been watching the situation last year, amid expectations Thomas Cook would be recapitalised but that did not happen. Webjet had been able to withdraw inventory and “changed the booking window for them” amid concerns. “It was too little, too late at that point,” he told The Australian Financial Review.

The result also included depreciation and amortisation costs lifting from $13.2 million to $25.2 million, which was linked to factors including a new accounting standard and a recent acquisition. Employee costs rose from $50.8 million to $61 million.

The company had last year told investors that underlying EBITDA for the full year should rise to between $162 million and $172 million. On Wednesday, the company said this would have been even higher but for the coronavirus, which is hitting tourism businesses globally.

Coronavirus warning

Webjet predicted the virus would reduce second-half EBITDA by $7 million to $15 million, and so set current full-year guidance at between $147 million and $165 million. That would still mark an increase of up to 28 per cent on the 2019 figure, Webjet said.

Mr Guscic said a material slowdown had struck business in China. Some hotel occupancies were at 10 per cent and some airlines had cancelled flights until April.

“So, no matter what happens, the Chinese travel market will be non-existent over that period,” he said.

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“There is obviously a knock-on effect across particular countries that are close to China geographically” although this was nowhere near as large, he said.

A smaller impact was felt in Europe and it was “virtually non-existent in the Americas”, he said.

Webjet has had to stop selling its most popular tour – China.

Mr Guscic said: “We have seen a slowing down in international and domestic travel over [a] three-week period. In particular, international travel has shown a higher level of softness.

“The Australian consumer is still travelling. They’re just doing it at a slightly reduced rate than at the same period last year.”

Coy on takeover talk

Mr Guscic also declined to comment about any takeover interest in Webjet after Street Talk reported last month that the company had received potential indicative valuation views from prospective buyers.

Bradley King, a fund manager at Armytage Private, which has a stake in Webjet, said it would be interested in takeover talk at a price above $17 a share.

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“It’s clearly a very scalable business,” Mr King said.

He also backed the overall earnings result and said some people were seeing the company as a flight aggregator, whereas it was now the world’s second-largest bed inventory supplier.

“They’ve got good pricing power,” he said.

An earnings conference call with Mr Guscic also featured some tense moments: he told one analyst, who asked what distinguished its bedbanks division from rivals', to do “a little more research on our business”.

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